Analysis of the Alternatives
The entrepreneur of Aquionics (a biotech company) is seeking some alternatives for the protection of the technology. Aquionics used to produce an application for the treatment of glaucoma. The entrepreneur is evaluating the alternatives for the commercial development of the product.
The three alternative approaches are:
1. Construct a laboratory for the manufacturing and testing of the product.
2. Subcontracting the testing to an existing laboratory.
3. License the technology to another firm.
Advantages
• Using the first approach will give the benefit of manufacturing the product as well as helping in testing and manufacturing of the related products as well.
• The second approach will save the cost, and less input will be required.
• The advantage of the third approach will be that no setup and manufacturing cost will be required, and the firm that will gain the license and will be responsible for conducting the manufacturing process and testing of the product.
Risks
• No apparent risks are involved in using the first approach.
• Using the second approach will take away the benefit of producing related goods and might result in the company losing control over the technology as the competitors can easily use the technology to produce similarproducts.
• The third approach will expose the technology to others and will lose the advantage of developing related products.
Cost
First approach requires the present value of $5 million.
Second approach requires a present value of $2 million.
Additional manufacturing cost of both alternatives = $6 million
The present value of cash flows = $20 million
The third alternative will give
$2 million as initial license fee, $12 million, 5% on royalty and $12 million on the present value of royalties.
Values of producing related products under the three approaches are:
Construction of laboratory facility $5 million.
Subcontracting to another firm $2.5 million.
Licensing $1 million.
Possibilities
Probabilities of the three scenarios are:
The product is a success and opportunity for developing related products (30%).
The product is a success, but no related products are found (40%).
The product is a failure (30%)....................
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
Related Case Solutions & Analyses:
Pacific Community Ventures & Galaxy Desserts: Community Development through Private Equity Investing
Prime Micro Inc.
The Auction for Travelport (B)
Hewlett-Packard (B)
How Media Choices are Changing Online Advertising
Exclusive Resorts: Entrepreneurial Positioning and Nonmarket Defense
Brand Report Card Exercise
Mannesmann AG
Corporate Governance
Risky Business: How Social Psychology Can Help Improve Corporate Risk Management
